How Much Life Insurance Should You Buy? Know the “Right Coverage Amount” in 2026!

Summary: 

• A life insurance policy pays a “death benefit” to the nominee upon the policyholder’s demise during the policy term.  

• The “right” cover amount may be equal to 10–20 times your annual income. 

• Since inflation increases living costs, you may also choose a sum assured equivalent to 8–12 times your projected future annual expenses. 

• The DIME method calculates coverage by adding debts, income replacement needs, outstanding mortgage balance, and education costs. 

• You can buy life insurance online directly on the airpay money app. 

A life insurance policy is the “safety net,” which provides financial protection to your dependents. If you pass away during the policy term, the insurer pays the “sum assured” (also known as the death benefit) to your nominee.  

But what’s the right coverage amount? 

Will a death benefit of ₹1 crore or ₹2 crore be “enough”? 

Read this article to learn how you can determine the ideal cover when buying your life insurance policy in 2026.  

1. An Ideal Life Insurance Cover = 10-20 Times Your Annual Income 

Several life insurance plan advisors recommend an “ideal” cover equal to 10-20X of your annual income. For example,  

• If your yearly income is ₹5 lakh, a sum assured between ₹50 lakh and ₹1 crore may be recommended.  

This amount can replace your income and support your family’s monetary needs. 

However, this is only a basic starting point! 

The right cover amount should be further adjusted as per: 

• Your financial responsibilities 

• Your liabilities, and  

• The number of dependents relying on your income. 

Want to avoid manual calculations? 

You may also use the life insurance calculator offered by airpay money. Enter your basic details (such as age, income, and expenses) and the calculator instantly estimates an ideal coverage amount.  

2. Add an “Inflation Margin” To Your Cover Amount 

Inflation gradually reduces the purchasing power and value of money. A sum assured that seems sufficient today may not cover the same expenses in the future. Thus, if a life insurance plan is chosen only based on present expenses, the payout may not be sufficient when the family needs it many years later. 

Let’s understand better through an example, assuming: 

• Current annual household expenses: ₹6,00,000. 

• Inflation rate: 6% p.a. 

Using these assumptions, future expenses would increase as follows: 

Observation? 

Expenses may increase by more than 5 times over 30 years with a 6% annual inflation rate. If life insurance cover is selected based only on the present expenses of ₹6 lakh, the death benefit may not be sufficient when your family requires more than ₹19 lakh per year (two decades later). 

So, what to do? 

You may add an “inflation margin” when deciding the life cover amount. Instead of calculating the sum assured as a multiple of today’s annual income, you may first estimate how expenses could increase over time due to inflation.  

After projecting your future expenses, you may set the cover amount around 8–12 times the projected annual expense. If we continue with the above example, the coverage amount could be roughly ₹2.3 crores (₹19,24,000 x 12 times) or ₹4 crores (₹34,46,000 x 12 times).  

3. You May Follow the "Income Replacement Method”

The income replacement method calculates life insurance by replacing the income your family would lose in your absence. It multiplies your annual income by the number of years your family will need financial support.  

Mathematically, it can be represented as follows: 

• Life Insurance Cover = Annual Income × Number of Years 

For example, suppose your annual income is ₹6,00,000, and support is needed for 20 years. Now, the required cover amount will be ₹6,00,000 × 20 = ₹1.2 crore 

Through this method, you can estimate a cover amount that can maintain your family’s lifestyle and meet their daily expenses. 

4. Age of the Policyholder 

Younger individuals usually have a longer earning period. They may also take on major financial commitments such as: 

• Housing loans 

• Retirement planning, and 

• Children’s education 

Since these obligations extend for many years, a higher cover may be appropriate. In contrast, older individuals may have already met several financial responsibilities and can opt for a comparatively lower sum assured. 

Conclusion 

So now you know how to estimate the right sum assured when purchasing a life insurance policy. To offer maximum financial protection to your family, you may choose the cover amount equal to: 

• 10–20 times your current monthly household expenses 

• 8–12 times of projected future expenses (after accounting for inflation) 

• The monetary requirement calculated using the DIME method 

Want to buy life insurance online in 2026? 

You may visit the airpay money app and check out multiple options offered by India’s leading insurers, such as Tata AIA and Max Life Insurance. We are a 360-degree financial wellness mobile application trusted by 1,00,000+ users.  

Also, you can use airpay money’s several utilities to calculate your right life insurance coverage amount, understand the impact of inflation, or plan for your retirement.